Download Migration and Growth in East and South-East Asia

Migration and Growth in East and
South-East Asia
Terrie Walmsley, Angel Aguiar, and S. Amer Ahmed 1
Abstract
East and South-East Asia face major demographic changes over the next few decades as many
countries’ labour forces start to decline, while others experience higher labour force growth as
populations and/or participation rates increase. A well-managed labour migration strategy
presents itself as a mechanism for ameliorating the impending labour shortages in some EastAsia Pacific countries, while providing an opportunity for other countries with excess labour to
provide migrant workers that will contribute to the development of the home country through
greater remittance flows.
While migration would be unable to offset the economic impacts of the declining labour forces
in the countries with shrinking populations, a more flexible migration policy, allowing migrants
to respond to the major demographic changes occurring in Asia over the next 50 years, would
be beneficial to most economies in the region in terms of real incomes and real GDP over the
2007-2050 period. Such a policy could deeply affect the net migration position of a country.
Countries that were net recipients under current migration policies might become net senders
under the more liberal policy regime.
Terrie Walmsley is Associate Professor and Director of the Center for Global Trade Analysis, Purdue
University and Principal Fellow at the University of Melbourne, Australia (email: [email protected]).
Angel Aguiar is a Research Economist of the Center for Global Trade Analysis, Purdue University (email:
[email protected]). S. Amer Ahmed is a Consultant with the East Asia and Pacific region and the
Development Research Group, World Bank (email: [email protected]).
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1.
Introduction
The United Nations (2005) projects that the demographic structure of the world – and of
Asia in particular – will undergo major changes in the next few decades. The sharp demographic
changes in East Asia, with mortality and fertility rates falling dramatically over the 1965-1990
period, contributed to the rapid economic growth of those times. These contributions occurred
through the working-age population growing at a much faster rate than its dependent
population, expanding the labour force as well as the per capita productive capacity of the East
Asian economies (Bloom and Williamson, 1998). Stepping ahead to the future however, these
same decreases in mortality and fertility will eventually lead to a decline in the working-age
population as people retire from the workforce. These rapid demographic changes that are
being observed in the East Asia and Pacific (EAP) region today and are projected to occur in the
future will have similarly important impacts for economic growth, although these impacts will
not be as generally positive as they have been historically.
Komine and Kabe (2009) find that Japan, with its declining total population and labour
force, will soon have declining growth rates, eventually reaching near-zero economic growth in
the 2040s. China, Hong Kong, Singapore, and South Korea are now experiencing declining total
fertility rates and will soon have aging populations. Their growth rates will continue at annual
rates of 3 to 5 percent until 2020, after which growth will decelerate. The annual economic
growth rate of South Korea will fall below one percent after 2030, and Chinese annual economic
growth will decelerate to about one percent by the 2040s. Indonesia, Malaysia, the Philippines,
and Vietnam are estimated to soon follow this deceleration, although their economic growth
rates will remain higher than those of China, South Korea, Hong Kong, and Singapore for longer.
The changing demographics of Asian countries will thus create labour shortages in some
countries, while other Asian countries will experience large expansions in their labour force,
with substantial economic impacts in all counties. A well-managed labour migration strategy
within the EAP region thus has the potential to ameliorate impending labour shortages in some
EAP countries, while providing an opportunity for other regional countries with excess labour
to provide migrant workers that will contribute to the development of the home country
through greater remittance flows.
This study examines the potential impact of increased migration on the East and South-
East Asian economies, in light of these projected demographic changes. These potential impacts
are analysed using a global dynamic simulation model, with migrant labour flows and
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remittances used to examine the impact of migration. The global dynamic migration model is
based on the Dynamic GTAP (GDyn) model, developed by McDougall and Ianchovichina (2001)
and the GMig2 model developed by Walmsley et al. (2007). The nature of both demographic
changes and migration for individual countries and its effect on other countries justifies the use
of a global dynamic economic simulation framework that can account for the factor and price
changes that will arise from the substantial labour force changes induced by demographic
transition and migration.
For the analysis, we develop a scenario that takes into account the impact of the
demographic changes expected to occur in Asia over the next four decades to 2050. Population
and skilled and unskilled labour forecasts are imposed exogenously, in combination with
assumptions regarding growth, technological change and capital accumulation. The scenario
also accounts for the impacts of the recent global financial crisis. We then allow migration in
Asia to respond endogenously to the changes in wages resulting from the expected growth and
demographic changes over the next four decades.
The following section will review the drivers of migration, the implications of
demographic change for labour forces in the EAP, and the potential for migration to address
some of the projected labour force declines in some economies. Section 3 will describe the
dynamic simulation analysis framework. Section 4 analyses the results of the scenario and
decomposes the impact of migration, while Section 5 concludes.
2.
Literature Review
There is a large and growing economic literature on migration and its impacts, going
back to Samuelson’s (1964) discussion of the implications of immigration into the USA on
labour supply and wages. This section will review a few broad segments of the literature. This
will allow for a thorough understanding of the mechanisms by which migration might affect
labour receiving countries and to better understand the Asian context within which the
mechanisms will be considered in this study. Section 2.1 will discuss the economic and socio-
political drivers of migration, while Section 2.2 will discuss the impacts and implications of
demographic change for economic growth and labour supply. By understanding the
implications of demographic change for labour supply, and the incentive structure of
international labour movements, the review of East and South-East Asian migration policy in
Section 2.3 can be better understood.
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2.1
Drivers of Migration
Contemporary theories of international migration across all disciplines (see Massey et
al., 1998) suggest that people move because of expected improvements elsewhere, where
improvements might include higher wages, employment, health, and education. In this context,
it is widely believed that international migrants respond to the economic conditions of the home
country relative to the expected conditions of the host country. At the same time, Ethier (1985)
argues that while there is a large descriptive literature on labour migration, studies on the
economics of labour migration are scarce, especially if compared to what has been done on
international capital mobility, which constitutes the other factor of production typically
considered.
From an economic perspective, migration occurs because of spatial differences in the
supply and demand of labour. For example, labour receiving countries such as Canada,
Australia, and New Zealand demand extra labour due to their aging populations, low birth rates,
and expanding labour-intensive industries, while labour sending regions have an excess supply
of labour due to high birth rates and relatively low rates of employment creation. These spatial
differences are usually detected in real wage differentials between these countries, which
encourage workers from low-wage countries to move to high-wage countries.
Table 1 summarizes the possible factors that trigger and/or maintain migration. The
decision to migrate is not equally influenced by all these factors. In general, push and pull
factors have a higher weight at the beginning of a migration flow and the social network factors
become more important as the migration flow matures (Martin, 2006). Lee (1966) derived the
“push-pull" migration model and explained that push factors drive people to leave their
countries (i.e. lack of stable employment, low wages, increasing population, inter alia) while pull
factors, impediments, and social networks, attract/deter people from potential countries of
residence. Social networks facilitate the “recruitment" and adaptation of new migrants in the
host country by providing or helping migrants to find job opportunities (Balan, 1992; Waldorf,
1996; Wilpert, 1992). Social networks perpetuate international migration, particularly along
certain established migration corridors. For example, Munshi (2003) finds that a large network
of Mexicans in the USA improves the employability of Mexican immigrants.
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Table 1: Push-Pull Factors of Migration
Push Factors
Pull Factors
Impediments
Social Networks
High Unemployment
Low Unemployment
High transportation cost
Excess Labour Supply
High demand for labour
Lack of shared border
Low income
High expected income
Different language
Job and wage
information
Assistance to new
migrants
Established
communities with
similar culture
Low wages
Economic or political
crisis
High Wages
Economic stability
Border control
Source: Aguiar (2009); Martin (2006)
Bringing the analysis of push-pull factors to Asia, Ducanes and Abello (2009) examine
the demographic, economic, political, and environmental factors that could play a role in
shaping future migration to and from China, Indonesia, and the Philippines. These factors are
provided in Table 2. High population growth rates in the Philippines are identified as providing
strong pressure for high annual out-migration, unless economic growth – and hence domestic
employment opportunities – increases substantially. The situation is somewhat different for
countries like China, where the population growth rates – and hence labour force growth rates –
have been declining, and growth is strong, reducing incentives for outward migration.
Ducanes and Abbelo’s (2009) characterization of the push-pull factors into economic,
demographic, political, and environmental factors provides a valuable insight for the purposes
of this analysis. The latter two factors, political and environmental forces, have historically been
responsible for many large-scale movements of populations, e.g. movements of refugees out of
conflict zones in Central Africa, or the displacement of rural populations in Bangladesh due to
the floods of 2007. These movements, by their nature, represent the impact of idiosyncratic
shocks, and are not due to decisions made by agents under normal circumstances.
In contrast, the push-pull factors of economic and demographic forces represent
conditions that allow economic agents (e.g. workers) to make rational decisions within a policy
environment. Economic push-pull can be interpreted very simply as the difference in potential
income and employment opportunities between the home and the target destination country.
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Table 2: Factors That Might Impact Future Outward Migration in China, Indonesia, and the Philippines
Factors Encouraging Outward Migration
China
Indonesia
Philippines
Factors Discouraging Outward Migration
Demographic Economic
Political
Environmental
Demographic
Economic
Political
Large
migrant
networks
destinations
Fast rising
incomes
impacting on
migration in
medium-term;
-high income
inequality
Ethnic unrest
in Tibet and
Xinjian;
undemocratic
political
environment
Rise in sea
level due to
climate
change; prone
to
natural
disasters
Low
population;
growth rate;
continuation
of one-child
policy
High growth
Democratization
processes
likely to gain
strength with
growing
urban middle
class
Large
migrant
networks
destinations
High
unemployment
rate;
Risks of
ethnic
animosities
being stirred
up; revival of
independence
movement in
Irian Jaya
Concerns
about
institutions;
armed
conflict
with
separatist
groups
in southern
Rise in sea
level due to
climate
change;
prone to
natural
disasters
Declining
population
growth
Consistent
economic growth
in recent past
Large
Poor history of
migrant
sustaining
networks
economic
destinations; growth
high
for long
population
periods
growth;
increasing
number of
tertiaryeducated
Source: Reproduced from Ducanes and Abbelo (2009)
Rise in sea
level due to
climate
change;
prone to
natural
disasters
High
economic growth
in past 6 years;
vibrant business
process
outsourcing
industry
Conflict in
Aceh
remains
dormant
Environmental
n/a
n/a
n/a
Empirical evidence suggests that workers respond to improved earnings opportunities
in other locations, and that conditions in the target destination may be more important than
conditions in the origin. Pissarides and McMaster (1990) found that inter-regional migration
within the UK responds to changes in regional relative wages and to differences in employment
opportunities. In the context of international migration, Hanson and Spilimbergo (1999) explain
that high wage differentials between the United States and Mexico have traditionally been the
cause of northern migration, but the surge of undocumented migration from Mexico during the
1980's is mainly the result of the increase in the relative size of Mexico's working age
population and the greater volatility of Mexican wages relative to the United States.
Demographic push-pull factors, while considered distinct by Ducanes and Abbelo
(2009), can also represent another economic force. If there is an excess supply of labour
(relative to domestic demand and employment opportunities) in an origin country, then there is
an incentive for those workers to move to markets where there is an excess demand.
Authukorala’s (2006) review of East Asian migration provides several examples of this in the
context of undocumented migrant workers from high-population countries travelling to
Thailand during periods of economic expansion in the latter, when demand for labour was high.
2.2
Economic Impacts of Demographic Change
Most analyses of the coming changes in Asian labour forces due to demographic changes
focus on the economic and socio-political implications of an aging population, such as financing
and provision of social services (Nizamuddin, 2000; Ogawa, 2003, Gubhaju, 2008), changing
inequality (Inoguchi, 2009), and international relations (Abidin and Wong, 2009; Ezrati, 1997;
Haas, 2007).
The labor forces of China, South Korea and Singapore will begin shrinking between 2020
and 2025, with the growth of many ASEAN labour forces also starting to decelerate, as indicated
in Table 3 (JCER, 2007). In some cases, non-ASEAN countries like India will continue to
experience an expanding labour force for a few more decades. This is especially disturbing in
light of what is known about the contribution of favourable demographic changes to the high
East Asian growth rates observed in the 1965-1990 period.
A seminal study by Bloom and Williamson (1998) found that rising working-age shares
in the population – and rising labour forces –increased per capita income while holding output
per worker constant. Updating the findings of Bloom et al. (2000) to the period 1960-2005,
Bloom and Finlay (2009) find that the working age share and labour force growth rates remain
important contributors to Asian growth. Columns I and II of Table 4 demonstrate the
importance of these two population variables for growth. In the case of Singapore, for example,
the labour force growth rate contributed to 2.21 percent of average economic growth between
1965 and 2005, with the growth of the working-age share of the population contributing to
more than half of average growth in the period. However, when the study applies projected
growth of the working age shares and population to determine their contribution to future
economic growth, it is found that with the exception of Malaysia and the Philippines, the growth
rates of all East and South-East Asian countries become negative as a result of the demographic
changes (column III, Table 4).
Policies targeting the changes to the labour force that have been considered include
such measures as increasing the retirement age of workers as well as encouraging higher
fertility rates (Bloom et al., 2007b; Watanabe and Fujimoto, 2008). However, the impact of the
latter approach is ambiguous, since policies to increase higher fertility rates may reduce female
labour force participation, reducing the labour force in the short run (Bloom and Finlay, 2009).
Inoguchi (2008) cites evidence from South Korea, where social policy emphasizing traditional
family values - to promote a society with higher fertility - encouraged an accelerated outmigration of specific groups of women.
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Table 3: Rates of percent change of labour forces of Asian countries
Japan
China
S. Korea
H. K.
Singapore
Thailand
Malaysia
Philippines
Indonesia
Vietnam
India
1980–1985
1.2
2.8
1.9
2.4
3.0
3.1
2.8
2.6
2.3
2.9
2.4
1985–1990
1.1
2.3
3.1
0.9
3.6
2.7
4.3
2.9
3.8
2.6
2.3
1990–1995
1.2
1.4
2.2
1.6
2.5
0.7
2.9
3.2
2.4
2.5
2.0
1995–2000
0.4
1.0
1.1
1.8
3.4
1.3
3.3
2.3
2.8
2.4
1.9
2000–2005
–0.4
1.0
1.4
1.9
1.4
1.2
2.6
3.8
1.9
2.3
2.0
2005–2010
–0.1
0.8
0.8
1.2
1.4
1.1
2.4
3.1
1.8
2.1
1.8
2010–2015
–0.3
0.3
0.6
0.4
1.0
0.7
2.2
2.6
1.5
1.5
1.7
2015–2020
–0.4
0.0
0.3
–0.4
0.1
0.4
1.9
2.1
1.4
0.9
1.5
2020–2025
–0.6
–0.2
–0.3
–0.6
–0.8
0.3
1.4
1.7
1.1
0.6
1.5
2025–2030
–0.8
–0.5
–0.6
–0.5
–1.1
0.1
1.1
1.4
0.9
0.4
1.3
2030–2035
–1.1
–0.7
–0.8
–0.3
–0.9
0.1
0.8
1.2
0.6
0.2
1.1
2035–2040
–1.4
–0.9
–1.1
–0.2
–0.5
0.0
0.6
1.0
0.4
0.0
0.9
2040–2045
–1.5
–0.9
–1.3
–0.1
–0.4
–0.2
0.5
0.8
0.3
–0.4
0.7
2045–2050
–1.5
–1.1
–1.5
–0.1
–0.7
–0.3
0.4
0.6
0.1
–0.6
0.6
Source: Reproduced from JCER (2007)
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Table 4: Contribution of Demographic Change to Average Economic Growth (Percentage
Points)
Contribution to Economic Growth from Growth of
Labour Force and
Population (1965-2005)
I
Working-Age Share and
Population (1965-2005)
II
Working-Age Share and
Population (2005-2050)
III
China
0.91
16.46
–0.36
Japan
0.35
9.53
–0.91
South Korea
2.01
36.4
–0.87
Singapore
2.21
51.13
–0.78
1.19
41.01
–0.05
Malaysia
1.12
26.71
0.13
Philippines
0.53
36.18
0.46
Thailand
0.88
20.81
–0.45
Bangladesh
0.15
9.53
0.42
India
0.01
0.27
0.36
Nepal
–0.63
–50.32
0.66
Pakistan
–0.10
–3.90
0.73
Sri Lanka
1.15
32.3
–0.26
South-East Asia
Indonesia
South Asia
Source: Reproduced from Bloom and Finlay (2009)
Given the potentially large differences in labour force growth rates between countries in
East and South-East Asia, the migration of workers into countries that will soon experience
declining labour forces from countries with rapidly expanding labour forces presents itself as a
potential response to the coming demographic transitions. Surprisingly there has been little
policy discussion in East and South-East Asia about migration as a response to demographic
changes and potential labour shortages, with the possible exception of Japanese immigration
reform allowing Nikkejin (migrants with Japanese ancestry, primarily from Latin America) to
live and work in Japan. There have also been few studies examining the potential impacts of a
migration policy that allows for movements of labour between Asian countries experiencing, or
soon to experience, differences in labour demand and supply. Tyers and Shi (2007) explore the
impact of such a policy, but for non-Asian countries.
The Tyers and Shi (2007) study projected substantial aging of labour forces in all
regions of the world up to 2035, and declines in labour forces in Western and Central Europe,
the former Soviet Union and Japan. They simulate a policy scenario where Western Europe,
North America, and Australia respond to declining labour forces by allowing for sufficient
migration from the rest of the world to hold non-working age dependency ratios constant from
2000 onwards. As Table 5 indicates (reproduced from Tyers and Shi, 2007), the labour
receiving countries are able to maintain high growth rates going to 2020 as a result of the large
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migration in-flows, while the rest of the world experiences substantial welfare losses. Since
Tyers and Shi (2007) do not take account of remittances it is possible that these substantial
losses could be partially offset by remittance flows. However, in order to maintain the labour
force growth rates in the North, Tyers and Shi (2007) simulated unrealistically high labour
movements out of developing countries – at rates that are only computationally feasible up to
2020 – the end year of their simulation. In this paper we do not attempt to maintain the growth
rates of the Asian labour-recipient economies by forcing extreme migration rates.
Table 5: Replacement Migration in Scenario Results, Percent Departure from Impacts in
Baseline Scenario with No Replacement Migration
Labour Force
Real GDP
Australia
90.6
62.8
North America
121.8
100.8
Western Europe
52.8
36.4
Central Europe &
the Former Soviet Union
Japan
-45.8
-43.9
0.0
-9.2
China
-5.5
-14.8
Indonesia
-0.2
-7.3
Other East Asia
-23.3
-24.2
India
-4.6
-10.1
Other South Asia
-9.3
-11.8
South America
-9.0
-12.6
Mid-East & North Africa
-12.6
-15.1
Sub-Saharan Africa
-6.5
-8.8
Rest of World
-80.7
-65.8
Source: Reproduced from Tyers and Shi (2007).
Note: Australia, North America, and Western Europe are the only countries receiving labour to maintain
base year dependency ratios.
Despite the detrimental effects of the simulated “replacement migration” strategy of
developed countries simulated by Tyers and Shi (2007), there is a substantial literature that has
examined alternative migration policies, both global and bilateral. This literature has predicted
substantial global gains from liberalizing the movement of labour. Back-of-the-envelope
estimates from Rodrik (2004) and Winters (2001) indicate that even modest liberalization of
temporary migration from the developing to developed economies can lead to substantial global
welfare gains. Hanson’s (2008) review of empirical analyses of the impacts of migration
suggests that ignoring large unmeasured negative externalities or unless there are pre-existing
distortions to the economy that migration interacts with, international migration liberalization
is generally beneficial to expanding global output. The review also finds that international
migration undoubtedly has wage impacts on the receiving countries, although changes in non11
labour incomes in the labour-receiving country are not well-captured by many statistical
analyses. The review suggests that this shortcoming is best addressed through global general
equilibrium (GE) analyses.
Computable GE simulations by the World Bank (2006), and Walmsley et al. (2009),
using global bilateral migration models and data that account for changes in non-wage factor
returns, predict that greater liberalization of labour movement from the South to the North
would lead to global welfare increases, with the migrant-sending, less developed countries
receiving a large share of these welfare gains.
The World Bank’s (2006) dynamic simulation framework analyses the global
implications of a 3 percent increase in developed country labour forces over a 24 year period,
with the additional workers coming from developing countries. Under such a counterfactual
change in labour force, global welfare increases by USD 674 billion (at 2001 prices), with
natives and new migrants in high-income countries, and in the developing countries, all
benefiting. Walmsley et al. (2009) uses a comparative static bilateral global migration model
(GMig2) to investigate the impact of lifting restrictions on the movement of labour. Quotas on
skilled and unskilled labour in the developed economies are increased by 3 percent of their
labour forces, with the additional labour supplied by the developing economies. The modest
liberalization increases global GDP by USD 288 billion (at 2001 prices).
The findings of these studies suggest that liberalization of the movement of Asian labour
has the potential to alleviate excess demand for labour and facilitate growth. Increased
liberalization of migration can reduce wage and employment pressures and fill the skill gaps in
the fastest growing Asian economies, while providing further opportunities to those economies
in the region with high population growth rates and slower economic growth. The result is an
improvement in the welfare of both sending and recipient economies.
Walmsley and Ahmed (2008) use the GMig2 modelling framework to examine multiple
counterfactual scenarios where both traditional migration destinations, as well developed East
Asia countries liberalize their migration policies. Comparing liberalization by North America,
Europe, and Oceania with liberalization by developed Asia, the study finds that regional
liberalization seemed to have more positive effects (or less negative effects in the short run) on
East and South-East Asian labour-sending economies. The study also finds that legalization of
undocumented migrants within ASEAN had significant positive effects in terms of real GDP and
income, particularly for Malaysia, and to a lesser extent the other economies of ASEAN, even in
the short run. They suggest that intraregional policies can offer an important alternative
mechanism by which Asian economies can reap some of the gains from liberalizing migration;
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particularly given the reluctance of Europe and traditional migration destinations (i.e. the USA,
Canada, Australia, and the UK) to open their borders. Such regionally based policies aimed at the
liberalization of migration both within ASEAN and by the developed Asian economies offer
potential gains in terms of real income and long-run economic growth, particularly for those
countries in East and Southeast Asia.
2.3
Migration and Migration Policy in Asia
Due to the potential challenges and opportunities presented by international labour
movements, historical migration and migration policy has come under great scrutiny by policy
makers. Manning and Sidorenko (2007) point out that intra-regional liberalization of skilled
worker migration would address the growing phenomena of skill shortages and surpluses in the
same occupations across Asian countries, such as seen among ASEAN member states. The study
cites Singapore as an example, where there has been growing excess demand for healthcare
professionals, managers, accountants, and engineers. At the same time, there is evidence that
neighbouring Indonesia and the Philippines have surpluses in several of these professions. A
policy framework that encourages intra-regional migration could have tremendous potential
welfare gains for all countries concerned.
The literature has thus exploded with a plethora of reviews and collections of studies of
the history of East and South-East Asian migration and migration policy, such as Debrah (2002),
Ananta and Arifin (2004), Massey and Taylor (2004), and more recently, the Asian Development
Bank (2008). These studies delineate a region that has a long history and culture of migration,
predating the colonial era. At the same time, they describe a region whose countries have a
great deal of heterogeneity in the levels of formality and structure in migration management
policies.
Migration within the EAP region has generally increased over time (Table 6). Korea is
the most notable exception, with a general fall in migration rates; and Malaysia’s migration has
been variable in the past with a large increase in the 1960s, followed by a small decrease in the
70s; most recently migration has steadied at a healthy 4-5%. Migration to Indonesia has steadily
declined over the entire period, as migrants have returned home.
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Table 6: Percentage Change in Number of Migrants per Annum
China
Hong Kong
Indonesia
Japan
Malaysia
Philippines
Singapore
South Korea
Thailand
Vietnam
19601970
1.3
0.5
-4.5
0.5
29.2
-0.1
0.2
2.9
-3.3
1.0
19701980
-15.1
1.9
-4.5
1.0
-0.9
-5.6
-0.1
11.4
-2.4
1.0
19801990
5.2
0.7
-4.5
2.9
3.5
1.1
3.3
0.8
0.5
4.1
19902000
9.0
1.9
-10.7
4.6
4.7
9.0
6.4
-0.1
9.1
18.7
19602000
-0.3
1.2
-6.1
2.2
8.5
1.0
2.4
3.6
0.9
6.0
19802000
7.1
1.3
-7.7
3.8
4.1
5.0
4.8
0.4
4.7
11.2
Source: Özden et al. (forthcoming)
Athukorala (2006) reviews migrant labour policies in East Asia and points out that most
countries in East Asia have historically lacked well-defined migrant labour management
programs. An exception is Singapore. It has had a long-standing and well-defined migrant
labour policy, applying industry-specific quotas and levies on employers for hiring low-skill
migrant workers, and has been able to leverage its migrant labour force to make substantial
contributions to its growth. like Malaysia, Taiwan, and South Korea have more recently
recognized the potential role of migrant workers in their long run economic planning, and have
been reforming their migrant labour policies as a result. For example, Malaysia has been
reforming its migrant labour policies since the 1980s, signing a series of bilateral labour supply
agreements to regulate labour inflows and introducing industry and skill specific levies on
employers hiring migrant workers (Kanapathy, 2004).
Table 7 provides a good snapshot of some of the key instruments being used by
countries in the region. It can be seen that the primary tools of migration management appear
to be trainee programs, levies, and bilateral agreements. The openness of the migration policies
is often linked to the closeness of socio-political ties, such as Malaysia preferring to recruit
labour from Muslim countries like Indonesia and Bangladesh, or Taiwan traditionally
discouraging workers from Mainland China.
China is notably absent from this table since it is overwhelmingly a source of migrant
workers for the world, and not a destination for most. Given its massive labour force, growing
industries have not faced labour shortages during China’s process of rapid growth over the past
few decades. At the same time, labour demand in China has not been high enough to encourage
14
migrant workers to overcome the legal and logistical barriers to entry. This may need to change
in the future as China confronts an aging population and sluggish labour force growth.
In many cases, the policies reflect a tendency towards restricting the in-migration of
lower-cost low-skilled migrant workers and promoting the out-migration of higher skilled
workers, as noted by Wongboosin (2003). Given the structural changes occurring in these
economies and in the world as a whole, these policies may contradict a potentially
advantageous flexible migrant worker policy. For example, Malaysia and the Philippines are
faced with increasing demand for less-skilled workers. However, their migration policies with
regard to less-skilled migrant workers are very restrictive (in terms of both the foreign worker’s
country of origin, and the region and sector in which he/she is permitted to work). When these
policies are combined with an increase in demand, for the same workers that these policies are
meant to restrict, the results are hindered growth and increases in the demand and supply of
undocumented workers—a pervasive problem within Asia. Migration policy reforms that are
more liberal with regard to the flow of lower skilled migrants may thus have unexpected
welfare benefits for the recipient country.
Recognizing the potential benefits of more integrated labour markets, countries in both
ASEAN and APEC have included discussions of labour mobility within their broader trade
negotiations. APEC labour mobility policy discussions have focused primarily on greater
mobility of business persons, such as through the Business Travel Card Scheme (APEC, 2010).
ASEAN policy discussions have been a bit more wide ranging, as evidenced by the creation of
ASEAN’s Framework for Agreement on Services (AFAS). ASEAN countries have also agreed to
work towards the formation of an ASEAN Economic Community by the year 2020, allowing free
movements of goods and investment within its borders (Bhatnagar and Manning, 2005).
However, Bhatnagar and Manning (2005) point out that the AFAS has had limited success in
opening additional sectors for service delivery through the temporary movement of natural
persons (Mode 4) beyond current GATS commitments, possibly due to domestic political
economic forces. The study also suggests that AFAS negotiations are not expansive enough. The
framework excludes unskilled workers that have dominated migrant flows from developing
South-East Asia. It also excludes employment in sectors like agriculture and manufacturing,
which have traditionally benefited from migrant labour in places like Hong Kong, Malaysia, and
Singapore.
15
Table 7: Summary of Migrant Worker Policies in Selected East and South-East Asian
Economies
Economy
Hong Kong*
Migrant Worker Policy
Domestic workers can be hired under two-year renewable contracts from any
country except mainland China, since 1979; quotas allocated to employers for
migrant workers to fill unfilled vacancies if positions cannot be filled by locals, since
1984
Japan**
The 1989 reforms of the Immigration Control Law facilitates migration of
professional and skilled personnel, while maintaining the principle of not accepting
unskilled migrant labour, employer sanctions introduced to discourage employment
of undocumented migrants; the 1993 Technical Internship Trainee Program allows
for de facto migrant workers in certain industries; Nikkeijin (descendants of Japanese
emigrants) given access to residential status with no restriction on employment.
Malaysia*
Bilateral agreements with Indonesia, Thailand, the Philippines, Bangladesh, Vietnam,
and Sri Lanka, with agreements describing skill requirements, sectors, and numbers
of migrant workers to be supplied; levy on migrant workers based on skill and sector
since 1991; low-skilled workers are issued annually renewable temporary
employment permits with a sector-specific maximum number of years;
professional/skilled workers receive passes relatively more easily.
Singapore*
Monthly levy payable by hiring agent for each migrant worker; dependency ceiling
limiting ratio of migrant workers to employer, by industry; levies instituted in 1987
and raised periodically; severe penalties for undocumented workers; migrant
workers can only be hired if vacancies cannot be filled by local; skilled migrant
workers encouraged to apply for residency
South Korea*
Migrant workers as “trainees” and can work under a “1-year training” and “2-year
employment” program since 2001; annual quota on number of trainees by industry;
since 2004, an Employment Permit Scheme allows migrant workers to stay for up to
3 years and change jobs up to 3 times; the focus of the scheme is help small and
medium enterprises
Taiwan*
Migrant workers viewed as means of promoting targeted industries; since 2000,
employment can be of up to 3-year term; workers who return to country of origin
after a 3-year term are eligible for another 3-year term
Thailand*
Migrant workers restricted to specific sectors with visas issued an annual basis; levy
introduced in 1996; bilateral agreement for labour supply from Laos and Cambodia
Source: *Athukorala (2006), **Kashiwazaki and Akaha (2006)
In 2003, ASEAN member-countries agreed to begin liberalizing their labour markets by
opening up certain sectors to workers from other ASEAN countries. The ASEAN Plan of Action
for Cooperation on Immigration Matters also agreed to better standardize visa issuance
procedures (ASEAN, 2010). However, Chiai (2006) notes that cooperation is limited on core
migration issues such as orderly recruitment of migrant workers and protection of the rights of
migrant workers, among other issues.
16
3.
Analytical Framework
Our analytical framework involves the application of a dynamic global general
equilibrium model (GMig2Dyn) to simulate a projected growth path of the world based on
current best-estimates of population, real GDP and labour growth from international
institutions over the period 2007-2050. 2 As part of this projected growth path, we simulate
more liberal international migration policies that allow the labour-force shrinking Asian
countries to import labour from those Asian countries where the labour-force is expanding.
3.1
Simulation Modelling
The dynamic migration model (GMig2Dyn) is based on the Dynamic GTAP (GDyn) model
developed by Ianchovichina and McDougall (2001) and the bilateral migration model (GMig2),
developed by Walmsley et al. (2007). Both the GDyn and GMig2 models are based on the GTAP
standard general equilibrium model. The standard GTAP model is a comparative-static general
equilibrium model of the world economy (Hertel 1997).
In the standard GTAP model, capital can move between industries within a region, but
not across regions. The GDyn model extends the standard model by incorporating international
capital mobility and capital accumulation. Furthermore, GDyn takes account of foreign income
flows and wealth, by keeping track of both the ownership and location of capital assets. In the
GDyn model, international capital mobility is modelled using a disequilibrium approach. GDyn
assumes an adaptive expectations mechanism that permits errors in expectations. These errors
in expectations are gradually eliminated, and rates of return on investment gradually equalize
across regions, resulting in a gradual movement of economies towards steady state growth.
The GMig2 model extends the GTAP model to consider skilled and unskilled bilateral
labour movement across countries, and their impact on growth, remittances and the real
incomes of migrants and permanent residents. The bilateral nature of the GMig2 model allows
us to analyse the effect of changes in the destination country’s immigration policy, targeting
particular migrant origin countries. The movement of labour of type i from region c to region r
(i.e. changes in labour force which are changes in LFi,c,r) can be determined exogenously, for
example through changes in quotas, or endogenously in response to changes in relative real
wages. Where migration occurs endogenously, workers (or labour supply) are assumed to
respond to changes in the expected real wages between the home (RWi,c,c) and potential host
(RWi,c,r) region according to equation (1).
2
We show results from 2007, but the GTAP 7 Data Base has a base year of 2004 so we must update it first to
2007.
17
LFi,c,r
 RWi,c,r 
= A i,c,r × 

 RWi,c,c 
ESUBMIGi,c,r
(1)
Ai,c,r is a coefficient which takes into account other factors in the migration decision (e.g.,
language, distance etc.) and is calibrated from the underlying GMig2 Data Base. ESUBMIGi,c,r is a
parameter reflecting the extent to which migrants respond to differences in real wages and is
set to 1 in this paper. The extent to which migration is endogenous is dependent on this
parameter. Increasing this parameter increases the number of migrants moving, but does not
change the directions of their movements. 3 A low parameter value means that the ability of
migrants to respond to changes in real wage differentials is limited, due to excessively high
costs associated with such movements. Such costs could include difficulties finding a job in the
host economy or distance from ones family.
Note that Equation (1) is calibrated on actual data and incorporates the current state of
restrictions on migration in the host country. 4 Figure 1 is used to further explain this. It is
assumed that demand and supply of migrants are equal and hence the labour market is in
equilibrium (see Figure 1). The labour supply curve is upward sloping – as wages available to
migrants in the host region rise relative to those in the home region, migration to the host
country increases. When there are no restrictions on migration imposed by the host country, the
equilibrium is represented by point A in Figure 1 where demand equals supply (Ls=Ld).
Equation (1) is the labour supply curve.
Turning now to the more likely case of restrictions on migration, the dashed line in
Figure 1 is used to depict the situation where a quota (or cost to migrants, either implicit or
explicit) has been applied to restrict the number of migrants. In this case migration is lower
than it would be without the quota, and the wage paid by firms (Point B, determined by Ld) is
much higher than the wage required by the migrant worker (Point C, determined by Ls). The
difference between B and C is the rent or cost of the quota induced by the migration restrictions.
There are a number of alternative agents who are likely to share this rent, including 1)
migration agents in the home or host country who charge fees for obtaining visas and/or finding
the migrant a job; 2) the host country employer who could pay migrant workers lower wages,
keeping the rent for themselves; 3) the host government through charges for visas or additional
taxes on migrants; 4) the home country government, if agreements have been made between
3
4
The authors also tested the model with ESUBMIG=0.4.
Given ESUBMIGi,c,r=1.
18
governments for transfers (for example, to pay for education expenses); or 5) the migrant
worker themselves. In this case we assume that all of the rent is earned by the migrant worker. 5
We argue that this quota reflects the current state of the host economy and the
preferences of its people and firms for migrant workers. This means that the current
equilibrium is the point at which the preferences of the incumbent population for migrants are
exactly balanced against the firms’ desire for more workers. Rather than eliminating this quota
altogether, we assume that as populations, and in turn labour forces, change and economies
grow, the host economies will adjust their quotas in response to firms’ demands for more
labour. The resulting labour supply curve is given by Ls1, and is higher than the original supply
curve (Ls). As mentioned above, this is due to the fact that the initial rents, which reflected the
preferences of the country towards migration, remain in place. Equation (1) therefore
represents this derived labour supply curve (Ls1 in the case restrictions). The implication of
this is that only changes in relative wages will drive new migration. If you want migrants to
respond to the initial differences in wages, i.e., the initial restriction depicted by the value of the
rent, then this rent would have to be removed so as to move the equilibrium back to point A.
Figure 1: Demand and Supply of Migrants (Equation 1)
Ls1
WHOST/
WHOME
Ls
B
A
C
Ld
Quota
L
Due to data limitations it is difficult to ascertain the value of this rent, and by making this assumption we
avoid the need to calculate its value. Given we do not reduce this rent during the simulations this has
assumption has minimal effect on our results. If this rent were to be reduced, it would be important to
clearly allocate this rent appropriately.
5
19
In summary, the dynamic migration model (GMig2Dyn) therefore features:
a) the accumulation of capital over time;
b) the ownership of capital and the income flows to those capital owners;
c) the movement of migrants and other changes in the labour force over time;
d) the flow of remittances back to the families of the migrants; and
e) the real incomes of migrants and permanent residents.
The model also separately identifies domestic and foreign workers by sector of
employment. Foreign and domestic workers of the same skill type are treated as imperfect
substitutes, but there is no distinction between foreign countries. That is, firms demand foreign
workers without regard to their country of origin (Aguiar, 2009).
This version of the model also includes unemployment of endowments (capital, skilled
and unskilled domestic and foreign labour) through the inclusion of an elastic segment in the
previously inelastic 6 labour supply curve. This is achieved through a complementarity (Elbehri
and Pearson, 2005) which sets employment equal to the natural rate of employment, unless a
fall in demand is sufficient to drive real wages down by more than a threshold rate of change. In
the next period, the employment rate will attempt to move back to the natural rate, but this will
only be achieved if demand is sufficient to return the economy to the natural rate without
further lowering wages more than the threshold rate of change. Provided the economy does not
continue to be hit by negative shocks, employment is expected to gradually move back to the
natural rate of employment. This allows us to capture unemployment resulting from the global
financial crisis. 7
Equation (1), which captures endogenous migration, also takes into account
unemployment. This reflects a main assumption of the Harris-Todaro model that the migration
decision between rural and urban areas is based on expected income differentials, rather than
just wage differentials. In Equation (1) the real wage is adjusted to take account of the
probability of employment once the migrant arrives in the host region. Real wages (RWi,c,r) are
calculated as the average expected real wage of the entire labour force, regardless of
employment status; hence this is the expected real wage given that a migrant may be faced with
unemployment after their arrival. If unemployment in the host economy rises then the expected
real wage falls, due to a higher probability of unemployment, and hence migration falls.
6
For simplicity of the diagrams, we assume that labour supply is fixed. In the model there will be some
interaction between total labour supply in an economy and the demand and supply of migrants, which responds
endogenously to real wage changes and unemployment, hence the total labour supply curve is slightly upwardslopping.
7
See Strutt and Walmsley (2010) for more details on how unemployment was incorporated.
20
Underlying the GMig2Dyn model is a database that captures both bilateral labour (GMig2
Database) and foreign ownership of capital (GDyn Database); as well as the core GTAP 7 Data
Base (Narayanan and Walmsley, 2008). The GTAP 7 Data Base has a base year of 2004 and
includes data for 113 countries and 57 sectors. For computational feasibility, the data base has
been aggregated to 29 regions and 27 sectors listed in Tables 8 and 9. For this study, we have
updated the GMig2 database to 2004, the base year of the GTAP 7 Data Base. The bilateral
migration data is based on a new migration data base by Özden et al. (forthcoming) and the
remittances data were also updated, using the IMF's balance of payments statistics on
remittances and workers compensation.
Table 8: List of 29 Countries and Aggregated Regions
•
Australia
•
•
New Zealand
•
Cambodia, Lao PDR, Myanmar, Brunei
Darussalam, Timor-Leste
India
•
Rest of Oceania
•
Bangladesh
•
China
•
Pakistan
•
Macau, Mongolia, Democratic PR Korea
•
•
Japan
•
Sri Lanka, Afghanistan, Bhutan, Maldives,
Nepal
United States of America
•
Hong Kong, China
•
European Union 27 members
•
Taiwan
•
Russian Federation
•
Republic of Korea
•
Former Soviet Union
•
Indonesia
•
Rest of North America
•
Malaysia
•
Latin America
•
Philippines
•
Rest of Europe
•
Singapore
•
Middle East and North Africa
•
Thailand
•
Sub-Saharan Africa
•
Vietnam
21
Table 9: List of Aggregated Sectors
•
Rice
•
Electronic equipment
•
Wheat
•
Other machinery
•
Grains and crops
•
Petroleum, coal products
•
Cattle and wool
•
Motor vehicles and parts
•
•
Other animals
Meat products
•
•
Chemical, rubber, plastic products
Metals
•
Processed rice
•
Metal products
•
Other Foods
•
Other manufacturing
•
Forestry
•
Construction
•
Mining and extraction
•
Utilities
•
Textiles
•
Transport and communication
•
Wearing apparel
•
Business services
•
Leather products
•
Housing, education and health
•
Wood and paper products
Further adjustments are also made to the database in order to improve the distribution
of unskilled foreign workers across sectors. Estimates of the number of unskilled foreign
workers by industry were obtained for Malaysia, Korea, Singapore, and Thailand from Yean and
Siang (2010); Hur (2010); Teng (2010); and Holumyong and Punpuing (2010) respectively
(Table 10). For other ASEAN countries – Indonesia, Philippines, and Vietnam – we use the
average distribution of unskilled foreign workers by industry of the aforementioned countries
as a proxy. For all other countries foreign and domestic workers are assumed to be allocated
across sectors in the same proportions according to the underlying total data available in the
GTAP Data Base. 8 The choice to redistribute unskilled workers by industry for Indonesia, the
Philippines and Vietnam, but not for the other economies, reflects the fact that Asia is the focus
of this paper, and there is reason to believe that the sectoral relationships in the other Asian
economies exist across all Asian economies. ASEAN thus tends to use unskilled foreign workers
more intensely in agriculture and food processing; while Singapore and South Korea use
unskilled foreign workers in food processing, light and heavy manufactures, construction and
services, in some cases.
8
Table A1 in the Appendix displays the distribution of unskilled domestic workers by sector in the database.
22
Table 10: Distribution of unskilled foreign workers across sectors in ASEAN countries
Manufacturing
Construction
Services
Agriculture
Malaysia
35.12
14.79
24.74
25.35
South Korea
41.61
22.30
34.16
1.93
Singapore
25.00
26.00
49.00
0.00
Thailand
15.39
16.75
31.31
36.55
Average (Indonesia, Philippines
27.88
19.01
33.15
20.26
and Vietnam)
Sources: Yean and Siang (2010); Hur (2010); Teng (2010); and Holumyong and Punpuing (2010)
3.2
Scenario
The model simulates the world economy from 2007 to 2050, under migration policies
that allow labour to move freely within the EAP region in response to changes in real wages.
These labour movements are in addition to, and the result of, the demographic and labour force
changes that are also projected to occur. The results are then decomposed to examine the
impact of the regional migration liberalization on the world economy over time, as well as the
other changes in the world economy.
The analysis takes into account the impact of the demographic changes expected to
occur in Asia over the next 43 years, from 2007 to 2050. It includes population and labour force
forecasts by skill that are based on the World Bank’s and the UN’s World Population Prospects
2008 Revision. The scenario also tracks actual and expected future changes in Real GDP from
2007 to 2012. Beyond 2012 calibrated technological change is assumed to persist (declining
gradually) to 2050. Between 2007 and 2012 additional assumptions are made to take account of
the global financial crisis, including additional adjustments to investment through a rise in
errors in expectations, unemployment of labour and capital, government spending and a
negative productivity shock aimed at capital, following Strutt and Walmsley (2010). After 2011
the financial crisis gradually comes to an end and unemployment falls back to pre-crisis levels.
Ignoring endogenous migration for the time being, both the domestic and foreign labour
forces are assumed to grow at the projected growth rate in total labour. Increases/decreases in
the domestic labour supply are implemented as changes in the natural rate of population
growth, while foreign labour increases are implemented through changes in migration. 9 The
change in foreign labour keeps the share of migrants in the total population constant. 10 Since
these labour forecasts are meant to include migration we assume that foreign labour grows at
the same rate as the domestic labour force. This means that a country is willing to exogenously
9
We assume that children born to migrant workers are included in the natural population and that all new
migrant workers come from abroad.
10 With the exception of Japan and South Korea where we assume that migrant growth is zero. Hence
when combined with negative growth of incumbent labour, migrant shares increase slightly.
23
increase migration (increase the quota) to keep the migrant shares constant. The impact of
including forecasts is discussed below – these are referred to as the “forecast” results. Next we
liberalize migration by allowing it to respond to wage changes – these results are labeled
“liberal” below and are also referred to as ‘endogenous migration’ in the text.
Thus migration in this scenario results from two sources: first, we assume that a country
is willing to exogenously increase migration to keep the migrant shares constant (forecasts);
and second, we assume that migration is liberalized so that migrants can respond endogenously
to changes in the real wages in the home and host economies (liberal). These two sources of
migration may work in opposite directions. For instance, an economy with a growing
population will increase the number of migrants to keep the share of migration in its total
population constant; on the other hand, the same country may experience declining wages due
to its rising population which will cause outward migration of its own population and return
migration of its foreign population, thereby negating the exogenous increase in migration. 11
4.
Simulation Results
In this section we examine the results of the scenario in terms of the projected
demographic changes, changes in bilateral migration in response to the changes in wages
resulting from the demographics and the impact of these on the EAP economy.
4.1
Demographic Changes and Real Wages
Figures 2 and 3 show the yearly forecasted growth rates of skilled and unskilled labour
forces obtained from the World Bank and United Nations. According to these data there is an
unmistakable downward trend in skilled labour growth rate in all countries, with forecasted
growth rates becoming negative or falling to almost zero in all of developed economies of Asia –
Hong Kong, Japan, Singapore, South Korea, and Taiwan – as well as in China and Thailand. The
forecasted unskilled labour growth, on the other hand, does not decline as significantly as
skilled labour, although it is negative or close to zero for the same seven economies –China,
Hong Kong, Japan, Singapore, Taiwan, Thailand, and South Korea.
11
The reader should therefore not interpret these large decreases in migration or return migration are large flows
of people back to their home economies, instead they are migrants choosing not to migrate in the first place or to
migrate elsewhere instead.
24
Figure 2: Forecasted Annual Growth Rates in Skilled Labour by Region
Source: Authors’ results
Figure 3: Forecasted Annual Growth Rates of Unskilled Labour by Region
Source: Authors’ results
Figures 4 and 5 show the cumulative percentage changes over time of the real factor
prices of skilled and unskilled labour resulting from these forecasted demographic changes in
the EAP region. Hong Kong stands out as an economy with the largest changes in real wages as a
result of the demographic changes. This is not surprising given the low growth in skilled and
unskilled workers, combined with the high accumulation of capital and forecasted changes in
real GDP. The figures show that real wages in Hong Kong are 350% higher in 2050 than they
were in 2007 for skilled workers and 600% higher for unskilled workers. The next highest
25
increases are in the Rest of East Asia and Thailand where real wages rise by 200% relative to
2007. As expected, the six of the seven economies – China, Hong Kong, Japan, Taiwan, Thailand,
and South Korea – highlighted above for having the lowest growth in skilled and unskilled
labour, are also those the economies where factor prices rise consistently over time; while the
other regions experience much slower growth in real wages. The one surprise here is Singapore,
where despite low/negative growth in skilled and unskilled labour, wages do not rise to the
same extent as in Hong Kong or even Thailand.
Figure 4: Cumulative Percentage Changes in Real Wage of Skilled Workers due to
Forecasted Demographic changes
Source: Authors’ results
Figure 5: Cumulative Percentage Changes in Real Wages of Unskilled Workers due to
Forecasted Demographic changes
Source: Authors’ results
26
4.2
The Impact of the Liberalization of Migration Policies on the Labour
Force and Migration
Table 11 presents an overview of the changes in the labour force, by skill type and by
country. The total change in the labour forces are decomposed into two main components
forecasts and liberal migration policies. The forecasts can be further divided into changes due
to the natural rates of changes in permanent residents (births/death rates, II and III) and our
assumption that migration increases with population forecasts (IV and V). The liberal migration
policies component can be further divided into changes in changes in the number of migrants
located in the country/region (VI and VII) and changes in permanent residents through outward
or return migration (VIII and IX). The labour forces of all countries, except for Japan, increase
over time. The decrease in Japan is due to the fact that the demographic changes occurring in
this country are not offset by migration. China’s and Indonesia’ labour forces increase the most,
due to positive natural population growth over the period and high initial populations. These
changes are the result of the forecasts discussed above.
Table 11: Decomposition of the Changes in Labour Force by Country between 2007 and
2050 (Millions of People)
Total
Change in Labour
Force
Unskilled
I
157.0
1.0
85.0
-13.1
9.7
46.6
Skilled
II
31.9
0.8
29.1
-10.1
6.3
10.9
Forecasts
Change in
Permanent
Residents (Natural Change in Migrants
growth due to
births/deaths)
Unskilled
III
158.2
-0.5
85.0
-13.1
9.6
46.4
Skilled
IV
31.6
0.1
28.7
-10.2
6.0
10.5
Unskilled
V
0.02
0.01
0.03
0.00
0.35
0.12
Skilled
VI
0.04
0.41
0.11
0.00
1.62
0.26
Liberal Migration
Change in
Permanent
Residents
Change in Migrants
(Return or
Outward
Migration)
Unskilled Skilled Unskilled Skilled
VII
VIII
IX
X
-0.01
-0.02
-1.20
0.29
1.46
0.25
0.00
0.02
-0.04
-0.10
0.02
0.43
-0.01
0.07
0.00
0.02
-0.21
-1.30
-0.02
-0.05
-0.04
-0.14
0.05
0.33
China
Hong Kong
Indonesia
Japan
Malaysia
Philippines
Rest E.
9.4
0.7
9.5
0.7
0.08
0.03
0.00
0.00
-0.14
Asia
Rest S.E.
24.9
4.7
24.9
4.5
0.10
0.16
0.00
0.00
-0.05
Asia
Singapore
0.2
0.1
0.2
0.0
0.06
0.07
-0.06
-0.01
-0.04
South
-0.6
3.7
-0.7
3.7
0.02
0.08
0.09
-0.07
0.04
Korea
a
Taiwan
1.3
-0.1
1.3
-0.1
0.00
0.00
0.00
0.00
0.00
Thailand
2.8
5.2
2.6
5.0
0.02
0.16
0.11
-0.03
0.05
Vietnam
38.6
2.9
38.6
2.9
0.01
0.01
-0.01
0.00
0.00
Source: Authors’ results
Note: a. no data on migrants are available for Taiwan, so there is no impact of liberalizing migration policy.
27
0.06
0.06
0.08
-0.04
0.02
0.11
0.03
It is the changes in the real wages occurring as a result of the financial crisis, economic
growth and demographic changes that drive the endogenous migration. Migration between two
countries depends on the changes in the real wages in both the host and the home country and
any changes in unemployment (Equation 1).
Hong Kong’s labor force increases the most as a result of more liberal migration policies,
with 1.72 million more workers, of which 1.71 million are new migrant workers and 0.02
returning migrants. China and Malaysia have the largest decreases in their labour forces as a
result of liberal migration, with 0.95 and 1.57 million fewer workers respectively. These two
countries, alongside Indonesia, the Philippines, and Singapore all receive fewer migrant
workers in 2050 under the more liberal migration framework, although the impact on the
labour force (in terms of people) in Indonesia and the Philippines is positive overall due to
return migration. Skilled workers in China and Singapore also increase for the same reason,
return migration of skilled workers (Column X in Table 11). The liberal migration policies also
cause the return migration of people from Hong Kong and an increase in outward migration of
Chinese and Malay residents.
Figures 6 and 7 compare the forecasted growth in skilled and unskilled labour with the
growth in skilled and unskilled labour under more liberal migration for selected countries,
respectively, over time. 12 Looking at Figure 6, this comparison highlights several interesting
points.
•
First, endogenous migration does not alter the growth of the labour force significantly in
most economies. Only in Hong Kong, where migration is highest, does the growth rate of
labour rise by just over 1%. This is because migrants are generally a small share of the
•
labour force in most Asian economies.
Second, another interesting feature of endogenous migration is the extent to which
migrants react to the global financial crisis. During the global financial crisis, real GDP
and real wages fall, while unemployment rises. The combination of falling real wages
and higher unemployment in the host economy generally reduce migration flows under
the endogenous migration scenario, albeit the direction can be sometimes unclear if
wages and employment also fall in the home country. Prior to 2020, Figures 6 and 7
show clear evidence of some temporary declines in migration (or increased return
migration) due to the financial crisis – only migration to East Asia increases. Labour
growth with endogenous migration is therefore generally below forecasted labour
12
Changes in the labour forces of all economies are provided in Table 10.
28
growth during the financial crisis (2007-2012) – in 2012, the number of migrants
•
globally was 0.82 million lower than under the forecast scenario.
Third, once the effects of the global financial crisis have dissipated (usually between
2012 and 2020), the demographic effects come into play and migration towards those
Asian economies experiencing lacklustre population growth becomes more evident.
Overall, migration due to the financial crisis is temporary and does not affect the
demographic story. Figure 6 indicates that if migrants are free to move in response to
wages, Hong Kong and Singapore would have mostly increasing growth rates of skilled
labour force after 2020, relative to the forecasts. For Malaysia and the Rest of East Asia
the model predicts only a marginally smaller growth rate of skilled workers than
originally forecasted.
29
Figure 6: Forecasted versus Endogenous Migration Annual Growth Rates of Skilled Labour for Selected Countries
Source: Authors’ results
30
Figure 7: Forecasted versus Endogenous Migration Annual Growth Rates of Unskilled Labour for Selected Countries
Source: Authors’ results
31
Figure 7 compares forecasted growth with endogenous growth for unskilled migrant
labour, with similar conclusions to those found with skilled labour in Figure 6. The growth of
unskilled labour with endogenous migration would be higher than forecasted unskilled labour
for Hong Kong after the crisis; prior to the crisis growth rates are lower, but recovery is quick
with growth exceeding forecasts by 2011. In Singapore, endogenous migration causes a larger
decline in the growth rate of unskilled labour relative to the forecasts until 2015. After 2015,
the unskilled labour force growth rate recovers quickly, but it is not until 2035 that the growth
rate under endogenous migration surpasses the forecasted growth. As with the skilled labour
force, Malaysia's unskilled labour force growth would be slower than originally forecasted when
considering endogenous migration, albeit the differences are minimal (Figure 7).
Changes in the labour force depend on the changes occurring within the bilateral
migration corridors, and the relative productivities of those migrants. Figures 8A, 8B, 9A, and
9B describe the unskilled and skilled labour migration corridors that expanded or contracted
the most over the period. These changes in the migration corridors are the result of both the
exogenous changes in forecasts and the endogenous migration due to more liberal migration
policies.
The largest changes in bilateral migration are the outflow of Chinese migrants from
Singapore and Indonesia into Hong Kong in response to the increase in real wages in Hong Kong
relative to those in Singapore and Indonesia. This is the result of the very large increases in real
wages in Hong Kong and the large number of Chinese already living in Hong Kong. Migrants
from Rest of East Asia are also entering Hong Kong and South Korea in response to the higher
wages, while Chinese migrants also enter the Rest of East Asia 13 to fill the gap left by migrating
East Asians. Unskilled South Koreans also return home from Japan as relative wages at home
rise, as do skilled Filipinos. 14
Thailand, which was also experiencing large increases in real wages in response to
demographic changes, receives large increases in migrants from South East Asia. Even though
real wages in Malaysia decline relative to many of the other countries and migrants from the
Philippines and Thailand return home, they are still able to attract migrants from Indonesia,
where growth in the labour force continues to be robust over the entire period. Moreover many
unskilled Malaysian migrants return home from Singapore, and skilled Singaporean return
home from Malaysia.
The inflow of Chinese into East Asia is primarily due to the forecasted increase in the labour supply in
East Asia, rather than as a result of more liberal immigration policy.
14
Skilled real wages of Filipinos increase faster than those in Japan up until 2040 (see Figure 4).
13
32
Figure 8A: Unskilled Worker Migration Corridors in EAP that Expanded the Most between
2007 and 2050 (Excluding Hong Kong / China).a
0.35
0.3
Millions of People
0.25
0.2
0.15
0.1
0.05
Malaysia / Indonesia
South Korea / Rest of East Asia
Thailand / Rest of SE Asia
Rest of East Asia / China
2049
2047
2045
2043
2041
2039
2037
2035
2033
2031
2029
2027
2025
2023
2021
2019
2017
2015
2013
2011
2009
2007
0
Hong Kong / Rest of East Asia
Source: Authors’ results
Note a. Number of unskilled migrant workers by location/home region
Figure 8B: Skilled Worker Migration Corridors in East Asia and the Pacific that Expanded
the Most between 2007 and 2050. a
0.6
Millions of People
0.5
0.4
0.3
0.2
0.1
Malaysia / Indonesia
South Korea / Rest of East Asia
Thailand / Rest of SE Asia
Rest of East Asia / China
Hong Kong / Rest of East Asia
Source: Authors’ results
Note: a. Number of unskilled migrant workers by location/home region
33
2049
2047
2045
2043
2041
2039
2037
2035
2033
2031
2029
2027
2025
2023
2021
2019
2017
2015
2013
2011
2009
2007
0
Figure 9A: Unskilled Worker Migration Corridors in East Asia and the Pacific that
Declined the Most between 2007 and 2050. a
0.25
Millions of People
0.20
0.15
0.10
0.05
Malaysia / Philippines
Malaysia / Thailand
Singapore / China
Japan / South Korea
2049
2047
2045
2043
2041
2039
2037
2035
2033
2031
2029
2027
2025
2023
2021
2019
2017
2015
2013
2011
2009
2007
0.00
Singapore / Malaysia
Source: Authors’ results
Note: a. Number of unskilled migrant workers by location/home region
Figure 9B: Skilled Worker Migration Corridors in East Asia and the Pacific that Declined
the Most between 2007 and 2050 (excluding Singapore / China). a
0.14
0.12
Millions of people
0.1
0.08
0.06
0.04
0.02
Japan / Philippines
Indonesia / China
Malaysia / Thailand
Singapore / Malaysia
2049
2047
2045
2043
2041
2039
Malaysia / Philippines
Source: Authors’ results
Note: a. Number of unskilled migrant workers by location/home region
34
2037
2035
2033
2031
2029
2027
2025
2023
2021
2019
2017
2015
2013
2011
2009
2007
0
These trends generally reflect the relative changes in real wages, although there are
other factors that also feature:
a)
trends that also include the exogenous changes in migration 15 and hence
b)
the movement of the migrants themselves also affect real wages and hence the
c)
migrants and domestic workers are not perfect substitutes in this model and
d)
population due to the forecasted changes in labour;
decision to migrate;
hence the wages of migrants may differ from the average wages depicted in
Figures 4 and 5; and
the real wages in Figures 4 and 5 do not take account of changes in
unemployment due to the financial crisis.
When we examine the disposition of the nationals from a specific country – specifically,
how many of them are expatriates – we see that all countries have seen increases in the number
of people that are living outside the home region (column I, Table 12). However, as a share of
their total population regardless of their current location, there are fewer Indonesians,
Malaysians, Filipinos, and Vietnamese living overseas (column II, Table 12). For example, more
than 5.2 percent of all Malaysians were living outside Malaysia, representing 0.65 million people
in 2007. By 2050, the total number of Malaysians living overseas increased by 0.19 million,
although the share of all Malaysians living overseas has fallen by 2.13 percent.
The extent to which migration occurs also depends on the choice of the parameter ESUBMIG in
Equation (1). We chose a value of one and undertook sensitivity analysis. In this sensitivity analysis we
found that lowering ESUBMIG to 0.4 lowered absolute changes in migration, however the direction of the
flows of the migrants was the same.
15
35
Table 12: Changes in National Populations Living Outside the Home Region, 2007-2050
Liberal
Change in
Number of
Expatriates
(millions)
China
Hong Kong
Indonesia
Japan
Malaysia
Philippines
Rest E. Asia
Rest S.E. Asia
Singapore
South Korea
Taiwan
Thailand
Vietnam
Source: Authors’ results
4.3
I
2.93
0.11
0.59
0.12
0.19
0.49
0.19
4.36
0.06
0.14
0.06
0.07
0.27
Forecasts
Change in
share of
Expatriates
in Total
Nationals (%)
II
0.21
6.51
-0.09
0.60
-2.13
-1.57
-0.21
1.53
2.13
0.05
0.23
0.02
-0.64
Change in
Number of
Expatriates
(millions)
III
1.17
0.09
0.64
0.09
0.10
0.51
0.09
0.20
0.03
0.12
0.05
0.15
0.26
Change in
share of
Expatriates
in Total
Nationals (%)
IV
0.06
7.28
0.09
0.64
-2.36
-1.19
-0.56
-0.27
0.53
0.06
0.35
0.35
-0.61
Additional Effect of
Endogenous Migration
Change in
Number of
Expatriates
(millions)
V
1.77
0.02
-0.05
0.02
0.09
-0.02
0.11
4.16
0.04
0.02
0.01
-0.08
0.01
Change in
Share of
Expatriates in
Total
Nationals (%)
VI
0.15
-0.77
-0.18
-0.05
0.23
-0.37
0.35
1.80
1.60
-0.01
-0.12
-0.33
-0.03
The Macroeconomic Impact of the Liberalization of Migration
Table 13 shows the impact on GDP decomposed into changes in capital, skilled and
unskilled permanent residents and migrants, and technological change. The changes in real GDP
depend on these changes in the workforce caused by the migration and on these changes and
the importance of each of these in real GDP (shown by the initial shares). The results are also
divided into forecasted changes in natural population growth and migration; and endogenous
migration due to more liberal migration policies. Overall real GDP rises over the period due to
forecasted changes in the labour force, increased capital accumulation and technological
changes. Only Hong Kong, Japan, Singapore, and Taiwan experience declining skilled and/or
unskilled forecasted labour growth, which would have adversely affected the overall positive
growth in real GDP. The decline in technological change in Singapore stems from the fact that
growth in capital is strong, while forecasted growth in real GDP over the period is relatively low,
particularly when the financial crisis is taken into account. 16
The impact of new migrants on real GDP is the result of both changes in forecasted
migrants and the more liberal migration policy. Overall only Japan and Singapore experience a
16
Technological change is calibrated as the residual between Real GDP growth and growth in endowments
(Solow growth residual).
36
decline in unskilled migrant workers which impact real GDP negatively (VIII outweighs VII,
Table 13). Skilled migration is positive overall for all regions (XII outweighs any declines in XIII,
Table 13).
Although there is an increase in migration into Japan and eventually also into Singapore,
the inflow of new migrants seems surprising low when compared to Hong Kong, especially
given that Japan and Singapore experience similar demographic changes to Hong Kong. This
lack of migration into Singapore and Japan can be attributed to the lacklustre growth in
forecasted real GDP over the period. The new liberal policies allow migrants to respond to real
wages. However, if real GDP does not increase substantially (as it does in Hong Kong) then there
are no incentives for migrants to move to Singapore and Japan. In the case of Singapore, only
skilled Singaporeans living in Malaysia are incentivized to move home. It is not until the long
run effects of the financial crisis have dissipated (2035) that migration into Singapore from
other regions increases enough for labour growth to exceed forecasted growth (Figures 5 and 6)
and for the beneficial effects of migration to at last be seen. In Japan, the low initial share of
migrants in the labour force, lacklustre growth in real GDP, and increased competition from
Hong Kong for Japan’s traditional Asian migrants, make Hong Kong a much more attractive
destination to migrants than Japan. Despite the relatively small size of the increase in migrants
into Japan, even this small increase in migration has a positive effect on Japan’s real GDP.
Singapore’s growth is also much higher in the later years when migration finally becomes
positive. 17 For this reason Singapore and Japan may want to consider more aggressive
liberalization of their migration policies, by reducing the implicit costs to migration (or rents in
Figure 1), thereby allowing demand by firms and the supply of migrants to increase. 18 Japan
and Singapore might then be able to attract migrants from alternative sources, such as the
Philippines, Thailand or from outside of the region.
China also gains in terms of real GDP as a result of the liberalization of migration
policies, although the increase in skilled labour is due to return migration, not new migrants. In
general the economies in East Asia (China, Hong Kong, Japan, and South Korea) all gain from the
liberalization of migration and from the increased capital accumulation that accompanies it
(column III, Table 13), while those in South-East Asia (except Vietnam) experience small loses.
The small loses in South East Asia occur because of the declines in the labour force
and/or capital. Changes in the labour force are driven by changes in the number of workers
17
Although by 2050, the gains had not yet outweighed the losses from earlier years where there was
considerable outward migration of unskilled workers. It is expected that if migration flows into Singapore
continued, real GDP would have risen above forecasted soon after 2050.
18
This would then allow migrants to respond to absolute wage differentials, not just changes in wages.
37
weighted by their productivities. Decreases in the labour force therefore occur if decreases in
the number of new migrants and/or outward migration offset return migration, or if migrants
leaving are more productive than those entering. In Indonesia and the Philippines the skilled
labour forces decline with migration, despite large return migration 19, causing slight falls in real
GDP. In Singapore, despite the high return migration of skilled Singaporeans, reduced capital
accumulation and unskilled labour cause real GDP to fall. This highlights the importance of
access to unskilled workers by developed economies like Singapore. In Thailand the loss in
capital and skilled migrants as a result of the liberalization of migration policy causes a slight
decline in real GDP. Malaysia’s real GDP falls with increasing outward migration of both skilled
and unskilled labour, and decreased inward migration. Finally, Vietnam, gains due to an
increase in new and returning skilled migrants.
Forecasted capital accumulation is the result of the dynamic mechanisms in the model
that cause investment to add to available capital stocks, and the forecasted increases in skilled
and unskilled labour (column II, Table 12). Capital also responds to the liberalisation of
migration policies. Countries that receive more migrants also experience increased production
and hence increased returns to capital, thereby causing more investment and the expansion of
capital over time. The reverse is true for countries experiencing outward migration, albeit the
increase in remittances does offset this to some extent. In Malaysia and the Philippines the
outflow of skilled workers abroad results in substitution towards capital which in turn has led
to an unexpected increase in the return to capital; and hence in the long run, an increase in
capital stocks. This increase in capital stocks however only begins after 2045 when migration
flows start to reverse (Figures 9A and 9B).
19
Returning skilled migrants are less productive than the skilled migrants that are returning to Singapore,
Malaysia and East Asia.
38
Table 13: Decomposition of the cumulative change in Real GDP between 2007 and 2050 into Capital, Unskilled and Skilled Permanent
residents and Migrants and Technological Change due to Forecasts and More Liberal Migration
Capital
Initial
share
Vietnam
Permanent
Forecasts Liberal
In VA
%Δ
%Δ
IV
V
VI
40%
18.7
-0.1
25%
-23.5
0.2
32%
80.2
0.01
35%
-27.5
0.01
37%
96.2
-0.08
26%
130.4
0.07
Initial
share
Tech
c
change
Skilled
Migrants
Forecasts Liberal
%Δ
%Δ
VII
VIII
18.7
-13.4
0.4
129.1
68.7
-20.8
0.0
-4.0
82.8
-26.9
110.3
-4.9
Initial
share
Permanent
Forecasts Liberal
%Δ
%Δ
X
XI
81.3
0.4
34.2
5.7
199.3
1.1
-49.3
0.2
307.5
-0.6
232.5
2.3
Migrants
Forecasts Liberal
%Δ
%Δ
XII
XIII
81.3
-24.5
57.1
22.4
199.3
-57.5
0.0
21.3
307.5
-61.0
232.5
-17.8
In VA
I
43%
54%
51%
44%
46%
58%
Forecasts
b
%Δ
II
391.3
941.2
519.4
99.4
509.7
1112.4
Liberal
%Δ
III
0.08
5.1
-0.2
0.1
0.2
0.1
49%
257.9
-0.2
34%
72.7
-0.7
72.7
0.0
12%
40.1
2.8
40.1
43%
658.2
-0.2
29%
67.2
-0.09
0.0
0.0
8%
103.4
0.5
52%
602.9
-0.8
30%
15.8
-2.6
12.6
-14.2
18%
-6.1
48%
333.6
0.02
34%
-1.8
0.2
8.5
33.5
15%
40%
64%
467.0
258.3
0.2
-0.4
35%
21%
11.9
7.1
0.00
0.1
11.9
7.3
0.0
18.5
38%
349.5
-0.01
38%
86.5
0.00
72.8
-14.4
a
China
Hong Kong
Indonesia
Japan
Malaysia
Philippines
Rest E.
Asia
Rest S.E.
Asia
Singapore
South
Korea
Taiwan
Thailand
Unskilled
Actual GDP
Forecasts
%Δ
XIV
157.7
108.2
54.1
61.9
84.7
141.8
Forecasts
%Δ
XV
434.4
664.2
328.5
55.8
564.8
1179.1
Liberal
%Δ
XVI
0.05
14.1
-0.1
0.2
-2.9
-0.02
0.0
48.6
223.4
-0.02
0.0
0.0
112.4
385.2
-0.04
21.2
11.9
-4.3
-31.8
124.7
-0.5
63.0
-0.4
63.0
-35.2
109.1
244.1
0.00
24%
9%
-9.2
61.7
1.5
1.0
7.7
61.7
0.0
-8.2
18.2
310.9
148.0
471.2
0.4
-0.04
12%
51.3
0.4
51.3
10.3
203.1
405.3
0.06
In VA
IX
11%
20%
8%
21%
12%
11%
Source: Authors’ results
Note: a. In VA – this is the initial share in value added.
b. % Δ – Percent change
c. Technological change is calibrated as the residual between Real GDP growth and growth in endowments (Solow growth residual).Technological change for a
given country has been has been weighted by considering whether it was on capital, labour or other endowments.
39
Table 14: Macro Results: Cumulative change between 2007 and 2050 due to Forecasts and More Liberal Migration
Real wage-Skilled
Real wages-Unskilled
Forecasts Liberal Forecasts
%Δ
%Δ
%Δ
China
84.3
-0.2
70.8
Hong Kong
341.8
-6.6
579.3
Indonesia
-21.8
0.08
-6.0
Japan
189.8
-0.3
119.3
Malaysia
-5.7
15.4
36.5
Philippines
75.0
0.9
116.8
Rest E. Asia
94.9
-1.8
34.0
Rest S.E. Asia
120.7
-0.5
41.5
Singapore
54.5
-5.6
39.5
South Korea
67.8
0.8
128.6
Taiwan
91.9
-0.9
55.9
Thailand
194.7
-0.4
186.3
Vietnam
206.8
-0.4
59.4
Source: Authors’ results
Note: a. Absolute change
b. Real income of permanent residents
Liberal
%Δ
0.1
-17.9
-0.3
0.2
1.6
0.2
0.3
-0.1
4.0
-0.6
0.2
-0.8
0.08
Exports
Forecasts
%Δ
654.8
664.5
371.5
47.9
715.7
3360.0
238.9
194.0
150.5
357.9
178.9
508.8
323.4
Liberal
%Δ
0.6
17.5
-0.1
-0.2
-3.1
0.2
-0.3
-0.1
-1.0
0.6
0.7
0.09
-0.08
Imports
Forecasts
%Δ
229.5
706.2
373.4
160.1
771.4
1762.4
305.8
545.0
165.9
262.4
177.1
402.4
306.6
40
Liberal
%Δ
0.9
10.9
0
0.6
-2.0
0.3
0.2
0.02
0.05
0.4
0.6
-0.03
0.07
Trade
a
Balance
Liberal
$US Mill
2,317
3,407
275
-10,296
-3,087
-188
-207
51
-4,167
2,935
356
564
76
Real
a
Remittances in
b
Income
Liberal Forecasts
Liberal
$US Mill $US Mill
$US Mill
12890
12245
447
25219
1
0
215
2366
26
13903
1771
-26
1846
1145
42
-506
12425
-120
415
1614
58
62
483
-3
1156
1439
8
441
1375
14
614
2625
-37
-1301
2554
-117
471
3823
-9
Remittances out
Forecasts
$US Mill
147
12684
94
5430
2714
741
51
340
1420
901
0
971
52
a
Liberal
$US Mill
-10
603
-35
70
-316
-19
0
0
-89
-12
0
-3
0
Table 14 provides results for some other macroeconomic variables. The real wages of
unskilled and skilled labour generally respond as expected -- with real wages falling (rising)
with increased (decreased) migration and labour forces in the long run. With the exception of
Hong Kong, Malaysia and Singapore, most of the changes in real wages and labour forces are
relatively small and therefore this amount of migration only partially offsets the demographic
uncertainties experienced by these economies.
In those countries where inward migration increases, remittances out also rose; the
reverse occurs in those countries that experience outward migration. With remittances out
increasing the current account balance, and hence the trade balance, move into surplus. Exports
rise relative to imports. Consumption and hence imports also rise due to the increase in the
migrant population and incomes. The exception is Japan, where remittances sent home are very
small 20 and the increase in investment and capital inflows caused by the migration generally
outweighs the impact of remittances on the trade balance.
Real incomes of the incumbent populations generally rise as a result of more liberal
migration policies. The reason for this is that people are choosing to return home from
countries with relatively lower wages (lowering remittances, but also raising incomes earned at
home) or migrating to those countries with relatively higher wages (raising remittances). The
reverse occurs in Thailand and the Philippines as migrants return home, lowering remittances
and real incomes.
4.4
The Sectoral Impact of the Liberalization of Migration
The sectoral results are shown in Table 15. In general sectoral production grows over
time with increased labour, capital and technological change (forecasts). Only Japan and
Singapore experience some declines in production over the period 2007-2050 as decreases in
unskilled labour cause production in certain labour intensive sectors to decline.
20 This is due to the fact that migrants in Japan are based on nationality rather than birth. Hence there are
many Japanese born people listed as “migrants” living in Japan who not have families abroad to send
remittances home to. Hence the remittance rate per person is very low.
41
Table 15: Cumulative Changes in Sectoral Production 2007-2050 due to Forecasts and the Liberalization of Migration Policy ($US Millions)
China
a
Forecasts Liberal
Rice
74477
10
Wheat
55777
7
Grains Crops
651722
-223
Cattle and Wool
112796
-40
Other Animals
489377
282
Meat Products
150836
78
Processed Rice
75832
10
Other Food
854926
98
Forestry
207409
-25
Extraction
613449
7
Textiles
1306142
-1977
Apparel
701527
-379
Leather Products
354667
-8
Wood and Paper Products
943963
-306
Motor Vehicles
435941
-181
Electronics
2068471
3604
Other Machinery and equip
1085880
-647
Petroleum and Coal Products
595971
-136
Chemicals, Rubbers and Plastics
1814282
-185
Metals
539549
-159
Metal Products
289791
11
Other Manufactures
1032318
1210
Utilities
530825
-65
Construction
75593
-403
Transport and Communications
3087662
-2775
Business Services
1414860
104
Govt, Health and Educ
2836662
978
Hong Kong
Forecasts Liberal
5
0
19
0
1059
7
940
4
5324
49
711
61
2
1
24964
1074
17
0
71041
67
73981
4225
29541
3426
3032
361
68036
1682
35741
300
133943
1008
157785
1221
3172
2
164222
1773
-5461
-639
25143
348
5392
62
47415
961
250696
1164
1937158
38613
267193
9785
105254
3920
Japan
Forecasts Liberal
1468
12
1138
-2
11103
38
4252
12
3372
24
3261
5
1267
14
136505
394
6609
-18
27507
2
-11676
-788
2928
-99
-1060
-18
96975
90
307680
-483
14011
1806
161595
-151
45003
121
123697
199
130277
831
71600
391
71440
612
87727
264
632354
3214
1491577
1243
772761
1771
838907
2874
Malaysia
Forecasts Liberal
784
-8
9
0
4076
-5
369
-1
5247
10
-264
14
197
-1
82565
-578
12447
-9
46065
-5
8274
-168
2324
-39
1470
-8
35254
-180
61687
-185
944064
-2440
148953
-983
52118
-206
266086
-699
36629
-277
25032
-133
156469
-666
51837
-213
77886
-139
206060
-1078
131407
-855
127815
-895
Singapore
Forecasts Liberal
-1
0
-7
0
-203
-4
-1
0
-12
0
127
-3
92
-2
9144
-52
-9
0
-70
0
-502
-52
-395
-25
-211
-20
3069
-107
1312
-15
54847
-572
-11232
-370
41041
121
52096
-473
13881
-34
6313
-65
11916
-128
4340
-24
53229
219
88027
-538
87865
-458
22710
69
Note: a. These are not forecasts exogenously imposed by the model, they are determined by the model when other forecasts are incorporated.
42
Thailand
Forecasts Liberal
60393
2
52
0
76256
-15
1990
-1
10243
13
18422
13
32349
16
53530
14
8281
-1
84474
1
39421
-143
25869
-15
10443
-6
40764
-45
131973
-34
185559
251
76582
-27
93406
-49
172358
20
10843
1
13118
1
41634
2
49813
-10
77574
-111
245549
-282
150526
-38
179395
17
Under more liberal migration policies, Hong Kong gains considerably as new migrants
workers enter the labour force, allowing sectors to expand. Since there are increases in both
skilled and unskilled migrant workers, all sectors gain as a result of the liberalization of
migration policy. In Thailand, on the other hand, unskilled labour rises significantly more than
skilled labour, and capital falls. This causes expansion in unskilled labour intensive industries
and declines in skilled labour and capital intensive industries. The reverse happens in China and
Japan where we see larger increases in skilled-intensive services and manufactures following
the increase in skilled labour. Many of the gains in Thailand are in the agricultural sector which
is very intensive in unskilled migrant workers (see Table 10 and compare to Table A1 in
Appendix A).
Malaysia and Singapore experience the largest declines in sectoral output. Malaysia is
similar to Thailand in that the largest declines are in skilled labour and hence skill-intensive
industries suffer most; while Singapore losses mostly unskilled workers like Japan. Since
construction is an important part of investment goods, the gains or losses to the construction
sector are closely aligned with the changes in the capital stock, although the sector will also be
affected by the availability of unskilled migrant workers since most countries use migrant
workers intensely in construction (Table 10).
5.
Conclusions
The East Asia and Pacific (EAP) region will be facing major demographic changes over
the next few decades. Japan is already facing a declining population growth, while China,
Singapore, South Korea, and Thailand are experiencing declining total fertility rates. They will
soon have aging populations, and will be followed by Indonesia, Malaysia, the Philippines, and
Vietnam. These changes in population and demographic structure have very strong implications
for changes in the labour force. China’s labour force will begin shrinking in the 2020s, with the
growth of many ASEAN labour forces decelerating. The five-year growth rates will become
negative for China, Hong Kong, Singapore, and South Korea, by the 2020s, although most other
countries will be spared negative labour force growth. This is especially disturbing in light of
what is known about the contribution of favourable demographic changes to the high East Asian
economic growth observed in the 1965-1990 period.
International migration presents itself as a mechanism by which the East and South-East
Asian countries with declining labour forces can attract migrant workers from countries with
higher labour force growth rates. Wage differentials and population pressures present pushpull factors that would encourage flows of workers from these relatively labour abundant
43
countries to the countries with current or future labour scarcity. However, current policies
regarding migrant workers in the region are complex and do not generally favour free
movement in response to these push-pull factors. An empirically grounded numerical
simulation approach is necessary to consider the impacts of liberalization of the current
regional policy regime.
This study develops such analytical framework and uses it to analyse the impact of a
more liberal migration policy within the East Asia and Pacific region. Overall, we find that
increased migration results in gains to both the origin and destination countries in terms of real
GDP or incomes. Migration flows in this scenario results from two sources. First, we assume that
the migration status quo of country is one where country migrant shares in the labour force
remain constant over time. Second, we assume that migration is liberalized so that migrants can
respond endogenously to changes in the real wages in the home and host economies (liberal), in
addition to the migrant flows that would occur to maintain the migrant share status quo.
In the case of the liberal migration policy scenario, migrants respond endogenously to
changes in relative wages arising from changes in demography and other economic factors,
which lead to increased migration and return migration towards East Asia. With the exception
of Thailand and the Philippines, all the East and South-East Asian economies gain in terms of
real income. Thailand and the Philippines experience substantial return migration, leading to
lower remittances, which cause incomes to fall. The large inflows of migrants and return
migrants into those East Asian economies experiencing the strongest demographic changes, also
causes an increase in real GDP for those economies.
While the increases in migration is insufficient to completely offset the declining labour
forces in the countries with shrinking populations, when migration is able to respond to the
push-pull factors in the region, labour and wages adjust to reduce the economic effects of the
demographic changes over the period. Capital also responds to the liberalisation of migration
policies. Countries that receive more migrants experience increased production and hence
increased returns to capital, thereby causing more investment and the expansion of capital over
time. The combination of increased labour and capital leads to the increase in real GDP found in
East Asia.
Even in Japan and Singapore, where the response of migration to the demographic
changes was considered low, positive gains in real GDP from migration were evident. For this
reason Singapore and Japan might want to consider more aggressive liberalization of their
migration policies to attract migrants from other sources.
44
Significant changes in migration patterns are also expected to occur over the period
examined, 2007-2050. Countries that are currently net senders of migrants may become net
recipients under a more liberal migration policy that allows endogenous movements in
response to wage changes. For example, China, Indonesia, and the Philippines are currently net
senders of skilled migrant workers. However, they became net recipients of skilled migrants as
skilled workers returned home in response to changes in relative wages. Conversely, net
recipients of skilled migrants, like Malaysia, and unskilled migrants, like Singapore, under
current migration policies, may become net senders of those migrants under a more liberal
migration policy.
Finally, inter-sectoral mobility of labour is an important assumption that the analysis
makes, and that is critical to help countries reap the maximum benefits of a labour force that has
expanded with migrant workers. Migration liberalization policies must thus be complemented
by policies that facilitate mobility of workers between sectors, and that help migrant workers to
move between industries, potentially filling gaps left behind by recent emigrants.
45
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Appendix A
Table A1: Distribution of Domestic Unskilled Workers across Sectors
China*
Hong Kong*
Taiwan*
Japan*
South Korea**
Rest E. Asia*
Indonesia**
Malaysia**
Philippines**
Singapore**
Thailand**
Vietnam**
Rest S.E. Asia*
Manufacturing
Construction
Services Agriculture
42.29%
8.29%
32.28%
17.14%
19.53%
4.58%
74.54%
1.35%
20.00%
0.00%
80.00%
0.00%
20.12%
8.50%
69.59%
1.79%
27.02%
13.31%
56.55%
3.12%
34.34%
5.64%
51.73%
8.29%
33.85%
7.98%
42.54%
15.63%
62.25%
3.61%
31.72%
2.42%
33.15%
5.82%
41.29%
19.74%
28.22%
6.37%
65.19%
0.22%
36.41%
5.24%
41.64%
16.71%
50.53%
7.73%
25.68%
16.07%
36.80%
4.48%
33.87%
24.85%
* The distribution of domestic and foreign workers is the same across sectors for these countries.
** See Table 10 for the distribution of foreign workers from these countries
50